Commercial & Industrial Property News Update

China - Skyscraper Craze Sparks Concerns Of Investment Risk


September 5, 2012

Chinese cities are on a skyscraper craze, but market watchers are concerned that the investments could face low occupancy.


When it comes to skyscrapers, the skies are seemingly the limit in China.


Beijing, Chongqing, Shanghai, Shenzhen and Changsha have all announced development projects that will outdo current skyscraper buildings in the country - and, in the case of Changsha, the world.


2016, the China World Trade Centre Tower 3, standing at 330 m tall, will have to give up its title of Beijing's Tallest Building. The nearby China Zun will dwarf Tower 3 with its 528 m stature, and is understood to be developed by the CITIC Group at an estimated cost of RMB 24 billion.


Over in Chongqing, RMB 10 billion is being poured into developing the 470 m tall Chongqing International Financial Centre.


Shenzhen is set to unveil its 660 m Ping'an International Financial Centre in 2014, estimated to be worth RMB 9 billion.


Shanghai, too, will elevate its skyline with its 580 m tall Shanghai Centre in the future, displacing the existing 492 m tall Shanghai World Financial Centre as the city's tallest building.


But Changsha is not content to break domestic building height records only; in June 2013, the capital of Hunan Province will construct in seven months a skyscraper that will be just 10 m taller than the tallest building in the world today - the 828 m Burj Khalifa Tower in Dubai.


Skyscrapers are defined as buildings that are taller than 152 m. China seems determined to conquer the heavens, with four of the world's 10 tallest skyscrapers located in the Chinese mainland.


Figures from motiancity.com, which tracks skyscraper buildings, state that as of March 2011, China has built 350 buildings taller than 152 m, even more than in the US. The website also noted that China then had 287 high-rise projects ongoing, and is aiming for at least 400 skyscrapers in total.


However, real estate watchers are concerned that the current craze to build taller and more expensive buildings - a trend often driven by ambitious local authorities seeking to raise the image and achievements of their constituencies - will prove unsustainable in the long run.


He Jingtang, an academic with the Chinese Academy of Engineering, warned that developers have to consider the potential risk of low occupancy.


Jones Lang LaSalle said that a slowdown in China's economic expansion has resulted in lowered demand for high-end office buildings in Beijing in H1 2012.


Making matters worse, Beijing Grade A office rents spiked by 50% in Q2 2012, according to DTZ Debenham Tie Lung Limited.


Small and medium enterprises are unlikely to be able to absorb rental spikes, leaving only larger firms to soak up the supply.


Hung-Ming Lin, board chairman and general manager of Taipei 101, the second-tallest completed building in the world, pointed out that skyscrapers need a long time before developers can see profits. As a result, developers run the risk of suffering from a strained money supply, he said.Skyscrapers are also expensive to maintain, with estimated management expenditure on the 420.5 m tall Shanghai Jinmao Tower reaching RMB 1 million each day.


Tall buildings are also especially threatened by fires, as most local fire brigades are not equipped to carry out rescues on building taller than 100 m. Helicopters would need to be involved in rescue work should a fire break out at a skyscraper, but few fire brigades in China are equipped for such flights, said an unnamed fire brigade official in Beijing.


Tags: Commercial real estate, Income properties, Business space, Office for lease

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